Wednesday, January 8, 2014

German economy prepares for strong year-end finish

German new orders increased by 2.1% MoM in November, providing further evidence that the economy’s industrial backbone is re-strengthening. Looking at the less volatile two-months average, new orders were up by 0.4% and by more than 4% on the year. In November, the increase in new orders was driven by both stronger domestic (+1.9% MoM) and foreign (+2.2% MoM) demand. The increase in foreign demand only reflected demand from countries outside the Eurozone. The increase in new orders adds to the picture of strengthening industrial production in the coming months. Anecdotal evidence shows that German manufacturers got their hands full reducing backlogs. Some companies even reduced the Christmas breaks of their employees. Earlier today, the statistical office reported that German exports grew by 0.3% MoM in November, from an 0.3% increase in October. As at the same time, imports dropped by 1.1% MoM, the seasonally-adjusted trade balance widened to 17.8bn euros; the fifth highest reading ever. These numbers suggest that after being a drag on growth in the third quarter, the external sector should have become growth-supportive in the final quarter of the year. Exports have slowly but surely returned as an important growth driver for the German economy, even though it is still is a growth driver with the handbrake up. Today’s increase was the fourth consecutive monthly increase. On the year, exports are now up by 3.6%. The drop in imports, however, will provide fresh arguments for recent criticism that the German growth model is doing too little for Eurozone rebalancing. Interestingly, a closer look at the export details puts this criticism into perspective. The high trade surplus is a result of surpluses with European countries outside the Eurozone and the rest of the world. In 2013, Germany’s trade balance with the rest of the Eurozone has been virtually in balance. In November, for example, exports to European countries outside the Eurozone were up by almost 5% YoY, while exports to other Eurozone countries remained unchanged. Today’s trade numbers once again confirm that 2013 was another year of Germany’s decoupling from the rest of the Eurozone. After a disappointing start of the fourth quarter, it increasingly looks as if the German economy has regained momentum towards the very end of the year, with hard data gradually starting to meet the high expectations created by buoyant confidence indicators.

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